Reciprocity and uncertainty: When do people forgive?

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Highlights

  • I study reciprocal responses to actions with unintended consequences.

  • I disentangle reciprocal responses from welfare and distributional concerns.

  • I find that when people intend to do harm but fail, they are still punished.

  • Similarly, if people intend to be nice but accidentally do harm, they are forgiven.

  • Subjects with reciprocal preferences are not outcome-biased, they judge intentions.

Abstract

A sizable proportion of individuals act reciprocally. They punish and reward depending on the (un)kindness of those with whom they interact. In this paper, I explore whether individuals still reciprocate intentions when others lack full control over the consequences of their actions. By means of a dictator game with punishment opportunities, I show that unkind intentions are enough to trigger punishments, irrespectively of the outcome. By contrast, accidents are forgiven. To isolate how uncertainty over the result of an action affects the assessment of intentions, I control for other possible departures from self-profit maximization, such as distributional concerns or efficiency maximization. I find that the former also plays a role in respondents’ behavior.

Introduction

The literature on experimental economics has shown that around one third of people act reciprocally. They are willing to forgo wealth in order to reward those who have been kind to them and punish those who have been unkind.2 Nevertheless, people are not always successful when they intend to be either kind or unkind, as the result of their actions is usually subject to uncertainty. In this paper, I study how lack of full control over outcomes affects reciprocity.

Conventional wisdom tells us that when we judge what others do to us, it is the thought that counts. Nevertheless, some evidence also suggests that subjects could be confounded when they assess actions with unintended consequences. In an influential psychology paper, Baron and Hershey (1988) find, by means of vignettes, that people differently evaluate decisions that are ex-ante identical in probabilistic terms, but lead to different outcomes. Similarly, in a recent paper, Brownback and Kuhn (2019) show that luck affected principals’ inference about agent types even when effort was perfectly observable. If subjects suffer a cognitive bias when they judge someone else’s actions, it is not clear how they would reciprocate unintended outcomes. This paper examines whether subjects react to intentions when these are not congruent with outcomes.

Using an experiment, I observe that subjects punish and reward according to the will behind an action, even if its result is the opposite to what was intended. When people intend to be unkind and fail, they are punished. Similarly, if they intend to be kind but do not succeed, they are forgiven. In my experiment, adding randomness to human action does not change the fact that reciprocity is intention-based.

To reach this conclusion, I run a dictator game with punishment opportunities. The dictator chooses between two options to split €20 between herself and a respondent. In one treatment, she chooses between a certain allocation of €10–€10 or a lottery that allocates €16 to the dictator and €4 to the respondent with a high probability. In the other treatment, she chooses between a certain option that allocates €16–€4 (favoring the dictator), or a lottery that allocates €10–€10 with a high probability. In both treatments, when the dictator chooses the lottery there is a small probability that the final outcome coincides with that of the certain allocation. The respondent then observes the dictator’s choice (and the outcome of the lottery, if applicable) and decides whether she wants to assign any punishment (or reward) to the dictator at a cost. This enables me to compare the reaction to choices that have the same intentions but different consequences.

To identify the effect that partial control over outcomes has on reciprocity, I run two additional treatments. First, a treatment in which outcomes are decided by nature -a random device- from the very beginning, which captures inequity aversion. This allows me to disentangle whether subjects might suffer a cognitive bias or whether they have distributional concerns. Second, I run another reciprocal treatment in which both options are certain. This allows me to explore whether choosing a certain/uncertain option vis-a-vis an uncertain/certain option modifies responses in any other way that could be orthogonal to intentions.

I observe that when intentions are unkind and outcomes are bad, respondents are willing to forgo wealth to punish dictators and these punishments go beyond the level that can be explained solely by inequity aversion. This is in line with previous results in McCabe et al., 2003, Falk et al., 2008, Blount, 1995, Gächter and Thoni, 2010. Moreover, and this is the novelty of the paper, I observe that in situations in which outcomes and intentions are not aligned, the latter still drive reciprocity. When intentions are unkind, but outcomes are good, respondents still punish dictators. Conversely, when outcomes are bad, but intentions are kind, the amount of money that respondents subtract is indistinguishable from the amount subtracted on the grounds of distributional concerns. Furthermore, when I compare responses in the certain and uncertain reciprocal treatments, I observe that punishments are statistically the same. Altogether, this reveals that when dictators have partial control over outcomes, respondents still reciprocate based on intentions. They do not suffer any cognitive bias when they judge actions with unintended consequences and uncertainty plays no role in their decisions.

These conclusions are partially at odds with previous literature. In a psychology paper that is closely related to mine, Gino, Shu, and Bazerman (2010) find that participants tend to punish more when the same action leads to a negative result, arguing that people are biased by outcomes. Nonetheless, while Gino et al. (2010) assess the effect of outcomes on recipient responses altogether, in my design I compare reciprocal responses to responses in the nature treatment. This makes it possible to distinguish between a cognitive bias and distributional concerns, which allows me to reconcile the notion that it is the thought that counts with the fact that respondents subtract money from dictators when outcomes are uneven. People do not suffer a cognitive bias, they judge others by their intentions. However, at the same time, they are willing to redress inequality, no matter how it arises. This distinction enhances our understanding of social preferences and sheds light on what to expect in situations in which distributional concerns play no role.3

The results of this paper are also at odds with the no-harm-no-foul hypothesis proposed in Bartling and Fischbacher (2012). In an interesting study about attribution of responsibility, they conclude, among other things, that when the outcome derived from an action is positive, people will not punish the subject even if her intention was unkind. To come to this conclusion, they observe behavior in two situations. In the first one, dictators can choose a fair allocation or delegate the choice to someone else. In the second one, dictators can choose between a fair allocation, an unfair allocation, or delegate the choice to a random device with a known probability distribution. In both cases, the authors find that respondents do not punish dictators if the outcome after delegation is good. In contrast with my experiment, in their first scenario respondents do not know the probability of each outcome after delegation (there is ambiguity), while in the second, delegation is the intermediate (and arguably neither kind nor unkind) choice. In my design, dictators choose between a certain outcome and a lottery with known probability and lower expected outcome. Arguably, when intentions are markedly unkind and unambiguous, the no-harm-no-foul hypothesis does not hold any longer.

My conclusions are aligned with what Charness and Levine (2007) find for positive reciprocity and Bartling, Fischbacher, and Schudy (2015) for collective decision-making. Charness and Levine (2007) conclude that people reward good intentions in a gift-exchange game with uncertainty. As Offerman (2002) and Dohmen, Falk, Huffman, and Sunde (2008) show, positive and negative reciprocity are uncorrelated motivations that different individuals can have. Focusing on negative reciprocity enables me to test the hypothesis that no harm implies no foul and observe whether individuals forgive unintended negative outcomes.4 Bartling et al. (2015) run an experiment with a board of dictators deciding upon the distribution of a pie. They find that respondents held dictators responsible for their votes, no matter the final result of the voting. Introducing randomness through a lottery allows me to have a closer look into the settings in which psychologists have found judgments could be biased.

The fact that respondents are not influenced by an outcome bias and punish dictators for what they intend to do might explain why Friehe and Utikal (2018) observe that hiding intentions is punished. Dana, Weber, and Kuang (2007) show that dictators more often choose the selfish option when their choice is not directly observable. The authors rationalize this behavior as a desire of dictators to avoid looking unfair, which might erode their social and self-image. Moreover, I document that when receivers actually have the opportunity to punish dictators for their choices, they judge them solely by their intentions. The absence of a nature treatment in Friehe and Utikal (2018) does not allow to establish, analyzing their data, whether the reason for a significant difference in punishments after good/bad outcomes is due to inequity aversion or to the type of cognitive bias documented in Baron and Hershey (1988). Nevertheless, the fact that hiding intentions is punished, is congruent with the hypothesis that when dictators lack full control over outcomes, respondents use intentions to judge dictators and punish them both monetarily and socially.

In the last years many other authors have explored the intersection between social preferences and uncertainty.5 However, none of them tackles the specific question that is central to this paper: Whether negative reciprocity is still intention-based when intentions and outcomes are incongruous. The same is true for papers that study the relative importance of intentions versus outcomes by studying how responses are affected when the choice set varies (see Bolton et al., 1998, Brandts and Sola, 2001, Sutter, 2007).

The results of this paper inform how to extend theories of social preferences to a context of uncertainty. Fudenberg and Levine (2012) and Saito (2013) show that only applying expected utility theory to classical models of other regarding preferences might be an unsatisfactory solution. Hence, to build sound models of social preferences under uncertainty, it is essential to provide theorists with data that disentangles and correctly characterizes all different motivations that drive behavior. The decisions taken by respondents in this experiment are consistent with the extension that Sebald (2010) proposes to the theory of sequential reciprocity in Dufwenberg and Kirchsteiger (2004). He proposes that respondents evaluate the kindness or unkindness of dictators by looking at expected outcomes and decide punishments in accordance. This is exactly what the experiment shows. In addition, I find this coexists with a preference for equality, absent in his model, that leads subjects to balance payoffs whenever they are uneven.

These results apply to situations in which reciprocity has been found to be relevant and individuals do not have perfect control over the consequences of their actions. A classic example are labor market relationships, in which the decision to go on strike (or pay a bonus) would be closely related to the intentions of the management (workers).6 Following the results of this paper, the CEO of a firm that is struggling due to an external economic shock, like a pandemic, would have more support from her employees if she has to make unpopular decisions than the CEO of a firm that wants to relocate production to China to save costs and earn a higher bonus. Even if in both cases the ultimate result is the closure of a factory, the workers would analyze the intentions of the management to decide their response.

The results of this paper also suggest what to expect in situations in which reciprocity has a bite but distributional concerns play no role. An example of this are consumer reviews. Reviews are in essence a reciprocal effort in which customers invest time to reward or punish the service provider. They have gained a lot of relevance in consumer choice and most companies put in a great effort to improve them. According to the results of this paper, consumers might forgive an issue with a service (e.g. a mistake in the check at a restaurant) if they think it was unintended, but they will punish it (writing a bad review), if they felt it was a scam. The perceived intention will determine the customer’s reaction, who will punish the scam tentative even if it was not successful. Likewise, patient-physician relationships might be affected by the same logic. Feeling mistreated could be a reason to write a complaint after an intervention, even if the final outcome was positive. Conversely, a diligent attitude and a good relationship with the patient could protect physicians from bad unexpected outcomes. In light of my results, signaling good intentions could be as important for service providers as minimizing mistakes to avoid customer retaliation, that could go from poor reviews to more formal claims.

Section snippets

Experiment design

The experiment is designed as a dictator game with punishment opportunities. There are seven different treatments. In the first two treatments (uncertain reciprocal treatments 1 and 2) individual A (the dictator) chooses how to split €20 between herself and individual B (the respondent), with the particularity that the result of her choice may not be deterministic (one alternative is a lottery). In the next three treatments (nature treatments) a random device determines the allocation from the

Predictions

When other-regarding preferences are studied, the same observed behavior can often be explained by different motivations. Hence, to ensure that the role of intentions in reciprocal behavior is pinned down correctly, it is necessary to control for competing explanations. In this section, I list the predictions of intention-based negative reciprocity together with what competing theories in the literature would predict in all possible scenarios. Then, comparing the behavior of individuals in

Results

In this section, I explore the robustness of intention-based reciprocity under uncertainty using non-parametric techniques and regression analysis. Fig. 4 summarizes the average points allocated by B to A in every possible situation.13 Looking at the graph, it is apparent that unkind intentions always lead to punishments, even when the final outcome is good for B. Moreover,

Conclusion

This paper sets out to study the robustness of intention-based negative reciprocity in a context of uncertainty. Using a dictator game with punishment opportunities, I show that reciprocity is still intention-based when dictators only have partial control over the consequences of their actions. By means of non-parametric tests and regression analysis, I reject the no-harm-no-foul hypothesis and observe forgiveness after unintended bad outcomes. In line with the extension by Sebald (2010) of the

Acknowledgement

I wish to thank G. Caruana, P. Rey-Biel, G. Llobet, A. Cabrales, E. Fatas and three anonymous referees, as well as seminar participants at CEMFI and at the IMEBESS 4th Conference for their helpful comments, Universidad Carlos III for letting me use the LEE UC3M lab, especially D. Moreno and S. Benavent, and I. Reca for his help with language editing. Funding from CEMFI, European Research Council under the European Union’s Horizon 2020 Programme (ERC Starting Grant agreement 638893 –

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